Whether you are starting a new business or running an existent one, you are likely to need external finance. There are equipment to be purchased, staff salaries to be paid, regular and seasonal inventory to be maintained and a lot many other expenses to be borne. If you are facing a financial crunch, then business loans come to rescue.
There are several options to avail business loans in India – banks, private lenders and online lending platforms, among a few others. Now, the question is how to choose the right business loan lender. You may find yourself in a fix because you may be unable to decide which lender is reliable and can offer you a loan suited best for your business needs. In case you make a wrong choice, you may end up getting a loan that fails to fulfill the purpose. Not to mention, you would feel cheated!
Well, here are some considerations you should bear in mind while choosing the right business lenders:
- Review Your Financing Requirement
Do you need working capital, vendor financing, merchant advance cash or line of credit loan? How much can you self-finance? When do you need the loan? Specifying the financing requirement elaborately will make it much easier to narrow down the list of loan providers.
- Eligibility Criteria/Terms and Conditions
Every business loan lender lays down a list of eligibility criteria that they expect the loan applicant to qualify for. So, instead of randomly approaching every lender, do research on their criteria and apply only where you are eligible. Apart from eligibility, also check out the terms and conditions such as interest rate, repayment schedule, EMI facility, loan ticket size, processing fee, hidden cost, etc. For instance, you want a loan of Rs25,000, but the lender does not provide small ticket size loans. Or, you take a loan of Rs5 lakhs and wish to pay in EMIs over a period of one year, but the lender expects the repayment in six months. You wish to pay loan instalments in PDCs, but the lender has only a direct bank debit facility. So, even if you meet the eligibility criteria, the terms and conditions may not be suitable for you.
- Processing Time
Banks are known to take weeks to months to process a loan application. Private lenders are speedier than banks, but their interest rates are exorbitant. So, you may want to consider online lending platforms which usually process the application in less than a week and offer an affordable interest rate.
- Unsecured Loans
Most traditional channels of financing and business loans in India require the businesses to mortgage an asset against the loan. While a large corporation can easily afford to do so, a small business mostly can’t due to limited resources. So, look for lenders who provide collateral-free loans.
It is very crucial to choose the right business loan partner. The above-mentioned tips for due diligence will ensure that you don’t run from pillar to post and also have better chances of getting the loan approved.